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Hit the information highway for info on car financing

Updated: May 3, 2013 12:14PM

Originally published: February 12, 2004

With the Chicago Auto Show running through this weekend, a lot of people are thinking about buying a new car. But before you fall in love with that shiny model on the floor, there are a few things you should know about pricing both the car and the financing. That’s really a simple task these days because online services make it possible for you to get all the information you need to make a great deal.

Obviously your first concern is getting the best price on the car. We’re way past the days when car buyers paid the price on the window sticker. Now you can go to a Web site such as or (Kelly Blue Book) to get information about the dealer’s true cost, as well as any special financing deals being offered.

Of course, if the car you’ve chosen is a new model in hot demand, you could wind up paying far more than the sticker price.

Financing deals

But the purchase price is only one aspect of the car-buying decision. You can get the greatest deal on the car but really get taken on the financing if you simply assume the dealership -- or the manufacturer’s advertised rates -- are the best deals in town. Even zero-percent financing has a cost, and sometimes you might be better off taking the rebate and getting your own financing for the balance of the purchase price.

Until now, it hasn’t been easy to evaluate the best financing deal. Typically, once you’ve agreed to a price, buyers simply accept the monthly payment offered by the dealer. Buyers with the best credit are usually financed by the subsidiary of the manufacturer, such as GMAC or Ford Motor Credit. Those with blemishes on their credit will have to pay a higher rate.

But dealers can make big money on the difference between what they pay for the financing from banks or finance companies and what they charge the consumer. Dealers try to strike a balance between making money on the financing and using their volume to get lower rates from their sources. But you may find your own better deal by going directly to your credit union or local bank, especially if you have money on deposit there.

Online advance approvals

And here’s something new: Just like getting pre-approved for a mortgage, you can now get pre-approved for a car loan, and know in advance what your rate and monthly payment will be. That gives you power to negotiate both purchase price and financing from a position of strength.

It’s a free service being offered at the Web site

Capital One is currently offering 36-month loans at 3.85 percent for those with the best credit. But you can fill in the online forms to calculate what your monthly payment would be for different rates and length of loan.

That’s all hypothetical, but if you’re really in the market for a loan, you can apply online and within 15 minutes and a background credit check, the bank will inform you of the total amount, rate and monthly payment for which you qualify.

Then it will send you overnight a blank check. So you know how much you can borrow, the rate, and the monthly payment. There’s no charge. And if you can negotiate a better rate or monthly payment with the auto dealer’s financing, you don’t have to use the Capital One loan.

Rate or rebate

Often it’s not very obvious which is the best car financing deal. Even the current zero-percent financing might not be better than taking the rebate and getting a low-cost loan for the balance.

For example, on a 36-month car loan, if you borrow $16,000 at zero percent, your monthly payment will be $444.44. Over the 36-month life of the loan you’ll pay back that entire $16,000.

But instead, suppose you take the $2,000 rebate, and finance the $14,000 balance at 3.85 percent. Because you’re borrowing less, the monthly payment drops to $412.40. And you’ll pay only $14,846.48, including interest, over the same 36 months.

Bottom line: By taking the rebate and financing with the low cost loan, you’ll save $1,153.52. You can work these alternative scenarios on your own at in the “Auto Loan” section by clicking on the Rebate/Interest Rate calculator.

Yes, auto financing is confusing. But it can cost you dearly if you don’t make the right decision. So this is a perfect opportunity to let your fingers do the walking online. And that’s The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast, and can be reached at

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